Is It Time To Close The Blue Market?

[GS_Dirtboy]

Ah, Venezuela! What a model of inspiration! I also want my daughter to grow up like Miley Cirus and my son to emulate Justin Bieber.

 

[EdRooney]

Agreed, but what is the proposed migration to normality plan here?

OK there are bigger brains here than mine, but here's what I got so far:

1. Negotiate early payment of outstanding debt based on current INDEC inflation stats.

2. Start publishing accurate economic data.

3. Raise the discount rate to real inflation + 2%.

4. Set up gov't backed certificates of deposit based on the new interest rates. Fund the CDs with a $0.004% financial transaction tax to prevent speculation.

5. As savings increase in pesos, BCRA would naturally buy USD on the open market, reversing outflow of reserves.

6. Continue using reserves to cushion the gradual deflation of the ARS at the same steady rate as 2010-13. This will reduce the Blue/Official gap. As the gap decreases, previous forex restrictions will become unnecessary.

7. Divert corporate subsidies (e.g. Chevron, Monsanto) to housing programmes to decrease real estate prices, thus encouraging people to use their CDs to buy houses.

8. Tighten credit restrictions/mortgage regulations to prevent a housing bubble.

9. Institute "Tocino para Todos" so we all get free bacon and peanut butter.

 

[dennisr]

Where to start:
Could we please Madame President, introduce the elephant in the room: inflation.

 

[Dublin2BuenosAires]

OK there are bigger brains here than mine, but here's what I got so far:

1. Negotiate early payment of outstanding debt based on current INDEC inflation stats.

2. Start publishing accurate economic data.

3. Raise the discount rate to real inflation + 2%.

4. Set up gov't backed certificates of deposit based on the new interest rates. Fund the CDs with a $0.004% financial transaction tax to prevent speculation.

5. As savings increase in pesos, BCRA would naturally buy USD on the open market, reversing outflow of reserves.

6. Continue using reserves to cushion the gradual deflation of the ARS at the same steady rate as 2010-13. This will reduce the Blue/Official gap. As the gap decreases, previous forex restrictions will become unnecessary.

7. Divert corporate subsidies (e.g. Chevron, Monsanto) to housing programmes to decrease real estate prices, thus encouraging people to use their CDs to buy houses.

8. Tighten credit restrictions/mortgage regulations to prevent a housing bubble.

9. Institute "Tocino para Todos" so we all get free bacon and peanut butter.

1. You may as well negotiate the payment of debt based on the weather in 2018, INDEC is a broken statistic and no creditor is interested in payment based on a lie.

2. Has to happen before no 1 !

3. Wooaaah. Raise the discount rate to 32% ? So no credit for any businesses, mortgages or personal loans? Welcome to a stagnant economy, Cuba basically. No movement, no investment, just a rush to get asssets offshore and out of a dead economy. That's a cute way of mandating that the economy must be controlled centrally, i.e. by the govt. You trust any politician in Argentina to run a command economy? Clientelismo would go through the roof with an entire country on the tit of a corrupt govt. There must be regulated movement of private capital in the economy for my money, for any economy to survive.

4. Why would anyone want a piece of that? CEDIN's didn't work, there is a ingrained pyschological aversion to investing with the govt in Argentina. I wouldn't go near it, as I would be looking at the economy collapsing around an APR or discount rate which means I can't borrow and if I am a lender I won't loan because I don't believe anyone can pay me back. Flow of capital stopped dead.

5. Pesos have by this stage changed their stripes to become dollars and have continued theor northerly migration to Miami, or Uruaguay if they got tired and preferred to roost nearer home.

6. 6 relies on 4 & 5 which relies on the population overnight changing their habits and believing that the govt or public institutions should indeed become their investor of choice.

Hang on. Aren't 7 & 8 sort of counter productive? Also, how will you replace to lost jobs when these corporations up and leave. Argentina is a risk for them, to get them on the pitch they have to offered legal bribes (aka subsidies), no bribes...sorry, subsidies, no investment. That's true the world over.

7. Divert corporate subsidies (e.g. Chevron, Monsanto) to housing programmes to decrease real estate prices, thus encouraging people to use their CDs to buy houses.

- Create supply.

8. Tighten credit restrictions/mortgage regulations to prevent a housing bubble.

- Strangle demand?

How do we sell these houses?

9. Forget all the above. I'm in...take my money.

In short, you are proposing more control to defeat the failings of a control. I can't see it. Command economies never work.

 

[John.St]

OK there are bigger brains here than mine, but here's what I got so far:

1. Negotiate early payment of outstanding debt based on current INDEC inflation stats.
2. Start publishing accurate economic data.
3. Raise the discount rate to real inflation + 2%.
4. Set up gov't backed certificates of deposit based on the new interest rates. Fund the CDs with a $0.004% financial transaction tax to prevent speculation.
5. As savings increase in pesos, BCRA would naturally buy USD on the open market, reversing outflow of reserves.
6. Continue using reserves to cushion the gradual deflation of the ARS at the same steady rate as 2010-13. This will reduce the Blue/Official gap. As the gap decreases, previous forex restrictions will become unnecessary.
7. Divert corporate subsidies (e.g. Chevron, Monsanto) to housing programmes to decrease real estate prices, thus encouraging people to use their CDs to buy houses.
8. Tighten credit restrictions/mortgage regulations to prevent a housing bubble.
9. Institute "Tocino para Todos" so we all get free bacon and peanut butter.

You mean, try something new: be honest and fulfill your obligations? Wrong country, me bhoy! - except, perhaps, for your point 9. :lol:

 

[EdRooney]

Au contraire, che Dublin,

My plan is to decrease controls, but to do it gradually instead of shock treatment. That's why I outlined those steps in that specific order.

First the re-negotiation has to happen before INDEC reform so we continue to pay less. Once you have the creditors' signatures on the restructuring, then you can start telling the truth.

Second is the idea of slowing down monetary velocity (the root problem behind excess inflation): divert the excessive aggregate demand into savings in pesos. At some point (of course a looooong process) Argentines are going to have to learn to trust their own currency, or they might as well just sign on as the next Honduras. The only way I can think of for starting this process is by making CDs in pesos ridiculously attractive, thus the high guaranteed yields so they will be attractive to households as an alternative to spending. Since (as Brad showed above) SME's are already over-leveraged, I'd rather they take the haircut in credit than household savers. And btw, that's why 3 comes before 4. Since the plan aims at lowering inflation, as it goes down credit will loosen up.

As you noted 7&8 are toying with supply and demand: steps to bring it back into equilibrium, but again without shocks. Make it easier to buy houses but not on credit; in cash pesos.

Lastly, that jazz about command economies is kind of silly. The most controlled economies such as the US in the 19th/ 20th century, England, Portugal, France in the 17th and 18th, China in the middle ages and now, etc., all of them were very controlled economies with trade barriers and protections on internal demand. The closest thing to "free-market" economies are countries like Haiti, Kenya, Morocco, Indonesia, etc., and frankly their economies bite.

Either way, this is a list I just came up with off the top of my head, so I appreciate your criticism, and would love to hear any better ideas you might have.

 

[Dublin2BuenosAires]

Au contraire, che Dublin,

My plan is to decrease controls, but to do it gradually instead of shock treatment. That's why I outlined those steps in that specific order.

First the re-negotiation has to happen before INDEC reform so we continue to pay less. Once you have the creditors' signatures on the restructuring, then you can start telling the truth.

Second is the idea of slowing down monetary velocity (the root problem behind excess inflation): divert the excessive aggregate demand into savings in pesos. At some point (of course a looooong process) Argentines are going to have to learn to trust their own currency, or they might as well just sign on as the next Honduras. The only way I can think of for starting this process is by making CDs in pesos ridiculously attractive, thus the high guaranteed yields so they will be attractive to households as an alternative to spending. Since (as Brad showed above) SME's are already over-leveraged, I'd rather they take the haircut in credit than household savers. And btw, that's why 3 comes before 4. Since the plan aims at lowering inflation, as it goes down credit will loosen up.

As you noted 7&8 are toying with supply and demand: steps to bring it back into equilibrium, but again without shocks. Make it easier to buy houses but not on credit; in cash pesos.

Lastly, that jazz about command economies is kind of silly. The most controlled economies such as the US in the 19th/ 20th century, England, Portugal, France in the 17th and 18th, China in the middle ages and now, etc., all of them were very controlled economies with trade barriers and protections on internal demand. The closest thing to "free-market" economies are countries like Haiti, Kenya, Morocco, Indonesia, etc., and frankly their economies bite.

Either way, this is a list I just came up with off the top of my head, so I appreciate your criticism, and would love to hear any better ideas you might have.

Honestly, it's a lot easier to kick and poke ideas than to come up with them, so fair play, hats doffed etc.

Number 1 and 2 still cannot happen in that order, it'd be nice if the creditors were dopey enough to sign up for it, but it's wishful thinking.

Your making some nice assumptions about Argentines learning to accept their fate and biting the bullet, I don't see it. They're are wiley bunch and it'll take a sea change for them to bet on the peso. Slowing down monetary velocity is economist-speak for killing economic activity stone dead. It's unpalatable and the results would be greater mistrust in govt control, however temporary, and even greater mistrust of govt investment vehicles. You can't kick someone in the balls, let them lie on the floor then tell them to stay down there and that you'll tell them when it's a good idea to get back up again !

I don't accept your point about command economies, because it is kind of silly to sing that song in relation to the 21st century. Context is king, I'd expand on that but I think's it reasonably self evident and it's too hot. Also, your playing zero sum games with your comparisons, I hate the free market model and all it's libertarian loony-ness (must be word?), I would advocate well regulated capitalism as the best of bad bunch. Control does not work in a 21st century context were international events, competition, the internet, easy movement of goods and capital will always corrupt your best intentions.

Hermetically sealed economies in a modern context do not work. Better?

 

[Dublin2BuenosAires]

Important caveat to my support of point 9.

This bacon better be the hearty slab of porky goodness I'd see back home in Ireland and not that dried up sliver of crunchy pig flavoured cellotape you people serve up in the US and other bacon illiterate countries. i want to have to chew that thing.

 

[Matiasba]

At some point (of course a looooong process) Argentines are going to have to learn to trust their own currency

This is the key. A very big percentage of inflation, blue dollar, and eventually huge crisis are explained culturally, by expectations.

 

[Dublin2BuenosAires]

This is the key. A very big percentage of inflation, blue dollar, and eventually huge crisis are explained culturally, by expectations.

by experience moreso.